AUD subdued despite stronger retail sales

The main theme in the FX space was a US dollar retreat on the back of the non-farm payrolls reading. 

Source: Bloomberg

The market went into the data very optimistic and in turn positioning on the US dollar was skewed to the upside. Treasuries rallied as the market saw the US payrolls report as friendly to a dovish Fed. While non-farm payrolls managed another 200,000 plus read, they came in below market in July and the unemployment rate actually ticked higher to 6.2%. Remember the Fed projected 6%-6.1% for the year-end and as a result this will be a concern. Additionally, the average hourly earnings reading was flat and this essentially means inflation will remain benign.

This round of jobs data confirms the concerns Janet Yellen has about jobs and underutilisation in the jobs market. Analysts feel this gives the Fed some breathing room, particularly ahead of Jackson Hole later in the month. However, there were some bright spots with a 15,000 revision higher for May and June.  

Short term resistance coming into play

AUD/USD was one of the currency pairs that found some near-term stability and has even managed to trade back above the 0.9300 handle. Perhaps selling a recovery into previous support at 0.932 will be the preferred strategy in the near term. The AUD is in for a busy couple of days starting with retail sales data today and then the RBA meeting tomorrow. Retail sales released today showed a 0.6% monthly rise and a 0.2% quarterly fall ex-inflation. Both readings were well ahead of expectations and showed there are signs of improvement in the local market. While the readings impressed, they weren’t enough to trigger an AUD rally as risk is still subdued due to geopolitical concerns. This is likely to continue capping near term gains.

Looking ahead to the rest of the week, the RBA is expected to leave its policy rate at 2.5% on Tuesday and the accompanying statement is likely to remain relatively unchanged. We will hear more from the RBA when the latest statement on monetary policy is released on Friday and Thursday’s jobs numbers will also be key for how the AUD trades this week.

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